A note to readers: This was written for a special centennial issue
of the NYT magazine. The instructions were to write it as if it were in
an issue 100 years in the future, looking back at the past century.

When looking backward, one must always be prepared to make allowances:
it is unfair to blame late 20th-century observers for their failure to
foresee everything about the century to come. Long-term social forecasting
is an inexact science even now, and in 1996 the founders of modern nonlinear
socioeconomics were still obscure graduate students. Still, even then many
people understood that the major forces driving economic change would be
the continuing advance of digital technology, on one side, and the spread
of economic development to previously backward nations, on the other; in
that sense there were no big surprises. The puzzle is why the pundits of
the time completely misjudged the consequences of those changes.

Perhaps the best way to describe the flawed vision of fin-de-siecle
futurists is to say that, with few exceptions, they expected the coming
of an "immaculate" economy -- an economy in which people would
be largely emancipated from any grubby involvement with the physical world.
The future, everyone insisted, would bring an "information economy",
which would mainly produce intangibles; the good jobs would go to "symbolic
analysts", who would push icons around on computer screens; and knowledge
rather than traditionally important resources like oil or land would become
the main source of wealth and power.

But even in 1996 it should have been obvious that this was silly. First,
for all the talk of an information economy, ultimately an economy must
serve consumers -- and consumers don't want information, they want tangible
goods. In particular, the billions of Third World families who finally
began to have some purchasing power as the 20th century ended did not want
to watch pretty graphics on the Internet -- they wanted to live in nice
houses, drive cars, and eat meat. Second, the Information Revolution of
the late 20th century was -- as everyone should have realized -- a spectacular
but only partial success. Simple information processing became faster and
cheaper than anyone had imagined possible; but the once confident Artificial
Intelligence movement went from defeat to defeat. As Marvin Minsky, one
of the movement's founders, despairingly remarked, "What people vaguely
call common sense is actually more intricate than most of the technical
expertise we admire". And it takes common sense to deal with the physical
world -- which is why, even at the end of the 21st century, there are still
no robot plumbers.

Most important of all, the prophets of an "information economy"
seem to have forgotten basic economics. When something becomes abundant,
it also becomes cheap. A world awash in information will be a world in
which information per se has very little market value. And in general when
the economy becomes extremely good at doing something, that activity becomes
less rather than more important. Late 20th-century America was supremely
efficient at growing food; that was why it had hardly any farmers. Late
21st-century America is supremely efficient at processing routine information;
that is why the traditional white-collar worker has virtually disappeared
from the scene.

With these observations as background, then, let us turn to the five
great economic trends that observers in 1996 should have expected but didn't.

Soaring resource prices. The first half of the 1990s was an era
of extraordinarily low raw material prices. Yet it is hard to see why anyone
thought this situation would continue. The Earth is, as a few lonely voices
continued to insist, a finite planet; when 2 billion Asians began to aspire
to Western levels of consumption, it was inevitable that they would set
off a scramble for limited supplies of minerals, fossil fuels, and even
food.

In fact, there were some warning signs as early as 1996. There was a
temporary surge in gasoline prices during the spring of that year, due
to an unusually cold winter and miscalculations about Middle East oil supplies.
Although prices soon subsided, the episode should have reminded people
that by the mid-90s the world=s
industrial nations were once again as vulnerable to disruptions of oil
supply as they had been in the early 1970s; but the warning was ignored.

Quite soon, however, it became clear that natural resources, far from
becoming irrelevant, had become more crucial than ever before. In the 19th
century great fortunes were made in industry; in the late 20th they were
made in technology; but today's super-rich are, more often than not, those
who own prime land or mineral rights.

The environment as property. In the 20th century people used
some quaint expressions -- "free as air", "spending money
like water" -- as if such things as air and water were were available
in unlimited supply. But in a world where billions of people have enough
money to buy cars, take vacations, and buy food in plastic packages, the
limited carrying capacity of the environment has become perhaps the single
most important constraint on the average standard of living.

By 1996 it was already clear that one way to cope with environmental
limits was to use the market mechanism -- in effect to convert those limits
into new forms of property rights. A first step in this direction was taken
in the early 1990s, when the U.S. government began allowing electric utilities
to buy and sell rights to emit certain kinds of pollution; the principle
was extended in 1995 when the government began auctioning off rights to
use the electromagnetic spectrum. Today, of course, practically every activity
with an adverse impact on the environment carries a hefty price tag. It
is hard to believe that as late as 1995 an ordinary family could fill up
a Winnebago with dollar-a-gallon gasoline, then pay only $5 to drive it
into Yosemite. Today such a trip would cost about 15 times as much even
after adjusting for inflation.

The economic consequences of the conversion of environmental limits
into property were unexpected. Once governments got serious about making
people pay for the pollution and congestion they caused, the cost of environmental
licenses became a major part of the cost of doing business. Today license
fees account for more than 30 percent of GDP. And such fees have become
the main source of government revenue; after repeated reductions, the Federal
income tax was finally abolished in 2043.

The rebirth of the big city. During the second half of the 20th
century, the traditional densely populated, high-rise city seemed to be
in unstoppable decline. Modern telecommunications had eliminated much of
the need for close physical proximity between routine office workers, leading
more and more companies to shift their back-office operations from lower
Manhattan and other central business districts to suburban office parks.
It began to seem as if cities as we knew them would vanish, replaced with
an endless low-rise sprawl punctuated by an occasional cluster of 10-story
office towers.

But this proved to be a transitory phase. For one thing, high gasoline
prices and the cost of environmental permits made a one-person, one-car
commuting pattern impractical. Today the roads belong mainly to hordes
of share-a-ride minivans, efficiently routed by a web of intercommunicating
computers. However, although this semi-mass-transit system works better
than 20th-century commuters could have imagined -- and employs more than
4 million drivers -- suburban door-to-door transportation still takes considerably
longer than it did when ordinary commuters and shoppers could afford to
drive their own cars. Moreover, the jobs that had temporarily flourished
in the suburbs -- mainly relatively routine office work -- were precisely
the jobs that were eliminated in vast numbers beginning in the mid-90s.
Some white-collar jobs migrated to low-wage countries; others were taken
over by computers. The jobs that could not be shipped abroad or handled
by machines were those that required the human touch -- that required face-to-face
interaction, or close physical proximity between people working directly
with physical materials. In short, they were jobs best done in the middle
of dense urban areas, areas served by what is still the most effective
mass-transit system yet devised: the elevator.

Here again, there were straws in the wind. At the beginning of the 1990s,
there was much speculation about which region would become the center of
the burgeoning multimedia industry. Would it be Silicon Valley? Los Angeles?
By 1996 the answer was clear; the winner was ... Manhattan, whose urban
density favored the kind of close, face-to-face interaction that turned
out to be essential. Today, of course, Manhattan boasts almost as many
200-story buildings as St. Petersburg or Bangalore.

The devaluation of higher education. In the 1990s everyone believed
that education was the key to economic success, for both individuals and
nations. A college degree, maybe even a postgraduate degree, was essential
for anyone who wanted a good job as one of those "symbolic analysts".

But computers are very good at analyzing symbols; it's the messiness
of the real world they have trouble with. Furthermore, symbols can be quite
easily transmitted to Asmara or La Paz and analyzed there for a fraction
of the cost of doing it in Boston. So over the course of this century many
of the jobs that used to require a college degree have been eliminated,
while many of the rest can, it turns out, be done quite well by an intelligent
person whether or not she has studied world literature.

This trend should have been obvious even in 1996. After all, even then
America's richest man was Bill Gates, a college dropout who didn't seem
to need a lot of formal education to build the world's most powerful information
technology company.

Or consider the panic over "downsizing" that gripped America
in 1996. As economists quickly pointed out, the rate at which Americans
were losing jobs in the 90s was not especially high by historical standards.
Why, then, did downsizing suddenly become news? Because for the first time
white-collar, college-educated workers were being fired in large numbers,
even while skilled machinists and other blue-collar workers were in high
demand. This should have been a clear signal that the days of ever-rising
wage premia for people with higher education were over, but somehow nobody
noticed.

Eventually, of course, the eroding payoff to higher education created
a crisis in the education industry itself. Why should a student put herself
through four years of college and several years of postgraduate work in
order to acquire academic credentials with hardly any monetary value? These
days jobs that require only six or twelve months of vocational training
-- paranursing, carpentry, household maintenance (a profession that has
taken over much of the housework that used to be done by unpaid spouses),
and so on -- pay nearly as much as one can expect to earn with a master's
degree, and more than one can expect to earn with a Ph.D.. And so enrollment
in colleges and universities has dropped almost two-thirds since its turn-of-the-century
peak. Many institutions of higher education could not survive this harsher
environment. The famous universities mostly did manage to cope, but only
by changing their character and reverting to an older role. Today a place
like Harvard is, as it was in the 19th century, more of a social institution
than a scholarly one -- a place for the children of the wealthy to refine
their social graces and make friends with others of the same class.

The celebrity economy. The last of this century's great trends
was noted by acute observers in 1996, yet somehow most people failed to
appreciate it. Although business gurus were proclaiming the predominance
of creativity and innovation over mere routine production, in fact the
growing ease with which information could be transmitted and reproduced
was making it ever harder for creators to profit from their creations.
Today, if you develop a marvelous piece of software, by tomorrow everyone
will have downloaded a free copy from the Net. If you record a magnificent
concert, next week bootleg CDs will be selling in Shanghai. If you produce
a wonderful film, next month high-quality videos will be available in Mexico
City.

How, then, can creativity be made to pay? The answer was already becoming
apparent a century ago: creations must make money indirectly, by promoting
sales of something else. Just as auto companies used to sponsor Grand Prix
racers to spice up the image of their cars, computer manufacturers now
sponsor hotshot software designers to build brand recognition for their
hardware. And the same is true for individuals. The royalties the Four
Sopranos earn from their recordings are surprisingly small; mainly the
recordings serve as advertisements for their arena concerts. The fans,
of course, go to these concerts not to appreciate the music (they can do
that far better at home) but for the experience of seeing their idols in
person. Technology forecaster Esther Dyson got it precisely right in 1996:
"Free copies of content are going to be what you use to establish
your fame. Then you go out and milk it". In short, instead of becoming
a Knowledge Economy we have become a Celebrity Economy.

Luckily, the same technology that has made it impossible to capitalize
directly on knowledge has also created many more opportunities for celebrity.
The 500-channel world is a place of many subcultures, each with its own
culture heroes; there are people who will pay for the thrill of live encounters
not only with divas but with journalists, poets, mathematicians, and even
economists. When Andy Warhol predicted a world in which everyone would
be famous for 15 minutes, he was wrong: if there are indeed an astonishing
number of people who have experienced celebrity, it is not because fame
is fleeting but because there are many ways to be famous in a society that
has become incredibly diverse.

Still, the celebrity economy has been hard on some people -- especially
those of us with a scholarly bent. A century ago it was actually possible
to make a living as a more or less pure scholar: someone like myself would
probably have earned a pretty good salary as a college professor, and been
able to supplement that income with textbook royalties.Today, however,
teaching jobs are hard to find and pay a pittance in any case; and nobody
makes money by selling books. If you want to devote yourself to scholarship,
there are now only three options (the same options that were available
in the 19th century, before the rise of institutionalized academic research).
Like Charles Darwin, you can be born rich, and live off your inheritance.
Like Alfred Wallace, the less fortunate co-discoverer of evolution, you
can make your living doing something else, and pursue research as a hobby.
Or, like many 19th-century scientists, you can try to cash in on scholarly
reputation by going on the paid lecture circuit.

But celebrity, though more common than ever before, still does not come
easily. And that is why writing this article is such an opportunity. I
actually don't mind my day job in the veterinary clinic, but I have always
wanted to be a full-time economist; an article like this might be just
what I need to make my dream come true.

Paul Krugman is a (full-time) Professor of Economics at the Massachusetts
Institute of Technology.